Why is Google Analytics free?
The Google Analytics business model is unique for the web analytics industry – a deep dive reporting tool suitable for companies of all sizes (see Who uses Google Analytics? ) given away free of charge. But is there a catch to this uniqueness? Well in my view there is none. Of course, given my background I am slightly bias, but the idea behind giving away Google Analytics makes perfect sense:
- Provide accountability and transparency to existing Google advertisers
- Provide confidence and prove the value of online advertising to potential new advertisers
Happy customers are good for business
For Google, may be as a result of using Google Analytics, customers will remain advertisers for a longer period, become less likely to lapse their accounts (take breaks from advertising), even raise their AdWords budgets to capture a greater share of the search market. For those users that are not advertisers, perhaps Google Analytics will give them the confidence to try it – that is Google Analytics helps Google acquire more advertisers. So giving away Google Analytics for free is a valid business model as it helps generate revenue for the business.
Compared to this potential (Google’s Q4 turnover in 2008 was $5.8b – almost all of it generated from AdWords advertising. Not bad for a resession!), the cost of providing analytics is small fry. Essentially, following Moore’s Law , data collection (bandwidth), data storage (hard disk space) and data processing (CPUs) are now becoming so inexpensive to provide, that they can be monetised in other ways. That is, provide the tool to help advertisers for free to help them spend more effeciently and therefore increase budgets in the long run.
Is this such a unique business model?
Giving away your technology up front in the hope of making your money back later in other ways is used in other industries. For example, the mobile phone industry has been giving away cell phones to customers with annual contracts for many a year now. Satellite TV companies offer free receivers, dishes and installation with their contracts and Internet Service Providers ship their routers for free to new customers. Of course these are not directly analogous to Google Analytics, as they all require a customer commitment to spend a minimum fee usually over a 12 month period. With Google Analytics however, there is no commitment. In fact anyone can use it without charge (and cancel at any time) even if you are not a Google Advertiser.
However being free can also be a hindrance. Some people dumb down the product, claiming that decent features must come at a cost. Others speculate that sharing your data with Google is a bad thing – "they will hike up your bids". But that is fraud and no business can survive that, as Enron proved (see also – Google is like a bank ). Perhaps by sharing your data, Google could provide a better service such as more qualified leads, better click fraud protection etc.
What has been interesting since I originally wrote this article in July 2007, is the fact that other search engines have now woken up to the fact that analytics and search marketing go together. Microsoft acquired Deepmetrix in 2006 and Yahoo acquired IndexTools in 2008.
Both products were originally a paid for services, in a similar price range to Urchin On-Demand (Google’s acquisition that became Google Analytics) and both companies have committed to releasing them for free.
So after all the huff and puff and speculation that free means "cheap", and Google has a hidden agenda, the business model has actually been validated…
Is having a free tool good or bad for the industry? Does it stifle competition or create new opportunities? Share your thoughts by adding a comment.